Chapter Objectives 1 of 2

What is Franchising?

• Franchising
• Franchising is a form of business organization in which a firm that already has a successful product or service (franchisor) licenses its trademark and method of doing business to another business or individual (franchisee) in exchange for a franchise fee and an ongoing royalty payment.
• Some franchisors are established firms (like McDonald’s) while others are first-time enterprises being launched by entrepreneurs (like Uptown Cheapskate).

Two Types of Franchise Systems 1 of 2

• Product and Trademark Franchise
• An arrangement under which the franchisor grants to the franchisee the right to buy its products and use its trade name.
• This approach typically connects a single manufacturer with a network of dealers or distributors.
• For example, General Motors has established a network of dealers that sell GM cars and use the GM trademark in their advertising and promotions.
• Other examples of product and trademark franchisors include agricultural machinery dealers, soft drink bottlers, and beer distributorships.